Melrose moves into red after GKN takeover, but shareholders remain undeterred

Acquisition specialist Melrose Industries fell into the red in 2018 after the £8bn takeover of aerospace parts group GKN, but shares rose five per cent on Thursday morning investors were buoyed by strong underlying profits.

The FTSE 100 firm, which specialises in buying and improving underperforming businesses, said the hostile takeover of GKN had helped it to a “transformational” year.

The figures

Melrose posted pre-tax losses of £550m for the year ending 31 December, down from a £703m profit in 2017 after it was hit by accounting charges relating to the GKN acquisition, while it had revenue of £8.6bn.

Net debt rose to £3.5bn, up nearly £3bn on last year’s figure of £572m, again largely down to the GKN deal.

But the firm said had the GKN deal been in place at the start of the year, it would have profited £886m over the year, with £12bn in revenue.

Why it’s interesting

Yesterday, Melrose took its first steps towards breaking up the engineering group after last year’s takeover.

The firm said it would offload GKN’s business supplying gearboxes for agricultural and mining vehicles, raking in £200m.

The takeover last year was the biggest hostile buyout in London since Kraft took over Cadbury in 2009, and sparked worries from trade unions that British jobs would be cut.

What Melrose said:

Chairman Justin Dowley said: “The former GKN businesses are proving their potential to offer the outstanding opportunities we expected and much has already been achieved in the short period of ownership.

“Despite the current economically uncertain environment, we have every confidence that we will be able to continue to unlock the substantial shareholder value from the former GKN businesses and further improve Nortek.”